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Category Archives: Self-employment

Are you ready for Making Tax Digital (MTD)?

If you’re a VAT registered business with a turnover above the registration threshold then Making Tax Digital (MTD) is compulsory from April 2019 and will mean big changes to how you do your bookkeeping. Watch this short video.

What is MTD?

From April 2019 businesses will have to provide VAT information to HMRC through MTD compliant software. If you’re already using cloud based software you may need to do little more than make sure it’s ready and working for MTD. If you’re maintaining pen-and-paper records then the MTD initiative is about to force upon you a huge change in your working practices.

I believe that you can – and I’d like to share with you 8 tips on how to do that.

HMRC’s resources are stretched meaning that they’re far more likely to investigate where they have reason for suspicion.

This being the case how can you avoid attracting the attention of HMRC?

1. Appoint an accountant – Errors on Tax Returns are one of the most common reasons HMRC has for taking a look at your file. An accountant will significantly reduce the risk of errors.

2. Review your Tax Returns – Ultimately the book stops with you, not your accountant. When you receive your documents for review make sure you give them the due attention.

3. Submit your Returns nice and early – HMRC makes no secret of the fact that it views you as “risky” if you persistently file late returns.

4. Pay your tax on time – same reason as above

5. Keep business expenses sensible – HMRC compares sector averages – it knows how much you should earn before it even receives your Tax Return. Significant deviations from the norm will raise eyebrows. If you’re unsure if a particular expense is legitimate – ask your accountant.

6. Use the “white space” – Your tax return includes a box “Additional Info” (aka “white space”) – use this if you are declaring something out of the ordinary. It may help avoid questions which can lead to an investigation.

7. Beware of easily overlooked omissions – one-off capital gains, interest on savings or small second incomes can easily be forgotten about when it comes time to prepare your Tax Return. But these are not forgotten by HMRC. Since 2010 it uses it’s Connect software to trawl publicly available databases, e.g. Land Registry (provides details of property ownership and transactions), eBay and Airbnb (might give clues of second incomes), even Facebook and other social media websites have become a treasure trove of information to compare life-style with declared earnings.

8. Avoid avoidance schemes – the scheme promoters will tell you that these are legal avoidance of tax, not illegal evasion. However, aggressive schemes such as Employee Benefit Trusts (EBT’s) or Icebreaker (famously used by Gary Barlow) are constantly being shut down by HMRC. Worst of all the participators of these schemes find that some years later the government enacts retrospective tax laws (as controversial as that is) to recover lost tax since the inception of the scheme.

Three months free tax investigation insurance

If the dreaded happens your best defence is your accountant – for between £6 – £10 per month we can insure you against the professional fees incurred in defending your case. Sign-up within 30 days of this post and we’ll give you three months free cover. To better understand our tax investigation insurance please read our blog post Can you insure against a tax investigation?

Enjoy saving tax?

We have two videos to help on ourchannel; and for regular tax-tips follow our blog on or click +Follow at the bottom of this page.

Are you ready to throw away those paper invoices and do your bookkeeping using only online software? Do you need to prepare for such a change?

If your turnover is above the £85,000 VAT threshold then yes, you have just 12 months to prepare. Smaller businesses are expected to go digital sometime after 2020.

MTD – in the making
March 2015 Chancellor Osborne announces “the end of the Tax Return” with the introduction of Making Tax Digital (MTD). The idea being that all self-employed people and businesses will be required to keep digital records (paper seemingly being outlawed) and the usual Tax Return will be replaced with 4 quarterly statements + a year-end statement submitted electronically to HMRC.

Over the following months accounting bodies and business groups identify a mountain of hurdles before this grand idea could possibly be implemented.

Summer 2016 and Brexit happened – which seems to have dramatically slowed down the implementation of MTD. The idea lives on but it’s very much a shadow of its former self.

MTD – where are we now?
The most recent government update was 13th July 2017 in which the following implementation timetable was outlined:
• only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes
• they will only need to do so from 2019
• businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020

What does MTD mean for you?
• Smaller businesses trading under the VAT threshold can breathe easy for now. At the earliest digital records and quarterly reports will be required from April 2020 (I suspect later).

• Businesses with a turnover above the VAT threshold should use 2018 to review which cloud software would best suit their needs. Now, this is where things become a little uncertain as the government are still to define exactly what will be required to comply with MTD for VAT. It is so far thought that such businesses will no longer be allowed to keep their records on spreadsheets and then manually transfer the figures into HMRC’s online VAT submission tool. HMRC’s aim is that VAT Returns are submitted directly from the software on which your records are kept. Whilst we still await precise guidance this year is probably a good time to consider using cloud accounting software from the start of your next financial year. Unfortunately, such software isn’t free but it does offer excellent reporting facilities and automation of processes (inc. bank feeds). We, like many of our clients, already use cloud accounting and wouldn’t look back.

The two most popular offerings being Xero and QuickBooks (Xero being our preferred choice).

Clients of ours that are most likely to be affected will be contacted by email shortly.

For now, even if you’re not immediately affected, it’s worth knowing that HMRC are pushing ahead with MTD – although, sensibly, at a much slower pace than originally announced.

As a general rule gifts to customers are not allowable against your taxable profits.

However, follow this guidance and you can afford to be a little more generous with your customers this year:

Small gifts which carry a conspicuous advertisement for the trader are an allowable expense. Common examples include: branded diaries, pens and mouse mats. The advertisement must be on the gift, not just the wrapping.

Unfortunately the expenditure of the following kind is specifically excluded (even if it incorporates your advertisement): Food, drink, tobacco, gift vouchers and gifts exceeding £50 per recipient (even if it carries your business logo).

What a great summer its turning our to be for cycling fans! As a business owner perhaps you’re wondering if the Cycle to Work Scheme could be of some benefit?

In my opinion, probably not, BUT…
The government have done it again – generally small owner managed businesses have found that the costs and hassle of operating the scheme outweigh the benefits.

For example – you could use a third party provider to set-up the scheme (usually a larger bike shop) but even then there’s salary sacrifice arrangements, benefits in kind, VAT claimed (then paid later!) and terms of employment to be updated. Forget it!

REAL WORLD SCENARIO
If you’re planning to use your bike for mostly business (including your commute) then your company can buy you a bike + safety equipment. The limited company will attract 20% corporation tax relief and be able to reclaim the VAT. Simples! A greater saving with much less trouble.

If you’ve ever received that dreaded letter through the door you’ll know that a tax investigation is costly in at least two ways:

1. A typical investigation results in tax penalties and interest levied on the taxpayer.

2. Your accountant will need to charge for their time spent defending your case.

And that’s not to mention your own time involved in digging-out and providing your historic records.

Whist you can’t insure against HMRC penalties or what they might discover to be unpaid tax you can insure against your accountants’ time in defending your case; ensuring that the final cost of tax and penalties is as low as possible.

Why is Massey Accounting Company now offering fee protection insurance?

Firstly, several recent enquiries from our clients’ prompted us to look at offering this service.

And secondly, let’s face it – the first thing you would do if you received that dreaded letter would be to call your accountant. In our experience tax investigation fees cause strain on our relationship with uninsured clients. I’m sure you understand that no one can work for free. The alternative might be to accept the assertions of HMRC and prematurely settle the enquiry. We would feel much more comfortable having the freedom to defend your case to the hilt!

How much does it cost?

The insurance can be paid monthly or annually in advance. There will be no difference in cost.